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Exam strategy and approach

Within your 20 minutes of official reading time given before the exam starts, read the exam requirement carefully and rapidly analyse the un-seen information in a calm and composed manner.

You can write on and highlight the question paper but you cannot use a calculator or write in your suggested answer booklet during this time.

During your 20 minutes of time…

• A plan of key words for each issue from the un-seen information (use the headings in the un-seen to prepare your ‘shopping list’).

• Write annotations against your ‘shopping list’ of un-seen issues.

Ø S = Strengths W= Weakness O = Opportunity T = Threat! Ø B= Business issue E= Ethical issue. Could be both? Ø Identify other stakeholders not from the pre-seen. Ø Write key words for ‘real world examples’, ‘other theories’ or

‘calculations’ to apply against each un-seen issue. Ø Write key words e.g. advice required from the un-seen information or

other issues from the un-seen information you don’t want to miss.

Each business or ethical issue contained within the un-seen information will be a strength, weakness, opportunity or threat.

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Your 3 hour exam time now official starts… 10 minutes max STRUCTURE

• Create a contents page and include appendices you will include

• Complete an introduction (Section 1.0) 1/4 of a page.

• Complete a terms of reference (Section 2.0) 1/8 of a page.

This won’t earn allot for your time, but will contribute towards integration marks for report format. Your introduction also is an opportunity to provide an industry example (pre prepared about the industry) for a 1% credit for diversity.

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10 minutes max Produce 2 theories within 2 appendices

• SWOT & Mendelow – Briefly introduce relevance, update these models with issues from the un-seen and underline them.

New issues within un-seen information to be highlighted with SWOT

Weaknesses

No feedback has been obtained directly from store managers or customers from trials.

Opportunities

Free disposable plastic bags discontinued & Papy 100% sustainable carrier bag.

New propane technology for fridges and freezers.

Range of technologies to improve new stores and installation of solar panels.

New IT package for transportation e.g. enables some fleet vehicles to be removed.

Threats

Adverse publicity about TORN Abattoirs

Customer impact of store closures or discontinued use of free plastic bags

Stakeholders within un-seen information to be highlighted with Mendelow

Key Players

The new Chief Executive, Lucas Meyer

Shareholders, RCB : private equity fund (seeks short-term profits) & HSOB bank (Papy is a client)

Keep satisfied

Papy Customers

Papy Store managers

Keep informed

Papy Staff (redundancy)

TORN Abattoirs

Environmental protesters

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30 minutes max FINANCIAL ANALYSIS within appendices

• Calculations and workings should be based on un-seen information given and should be need and tidy.

• Wait until later to discuss and evaluate any calculations prepared but explain any assumptions now.

• Up to 4% marks to calculate impact on carbon emissions • Up to 8% marks for calculating impact on profitability % EPS

APPENDIX

Impact on carbon emissions 2011 (million Kg)

Forecast carbon emissions 2011 (as per un-seen information) 1400

Forecast reduction of 750 million plastic bags

750 million plastic bags x (0.37kg of carbon emissions per bag)

= 277.5 million Kg of carbon emissions reduction -288

New propane technology for fridges and freezers

100 million kWh, in total from all stores x 0.8kg of carbon emissions

(per 1 kWh of energy consumption) = 80 million Kg of carbon emissions -80

Environmental improvements to stores

All initiatives reduce carbon emissions in 2011 by 35 million Kgs (as per un-seen) -35

Improved efficiency of transport

90 million gallons of fuel x 10% saving in fuel x 12.2kg

= 110 million Kg of carbon emissions -110

Revised forecast carbon emissions 2011 (million Kg) 887

Without taking into account any new initiatives planned within this un-seen information. Lucas Meyer wants to see at least a 400 million Kg of carbon emissions reduction from this current forecast of 1400 million Kg of carbon emissions. This will be achieved.

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Note: The carbon footprint from fair trade sustainable shopping bags equates to generating only 0.07kg of carbon emissions per bag. The expected value each year for bags sold is (8 million x 30%) + (4 million x 70%) = 5.2 million bags x 0.07kg of carbon emissions per bag = carbon emissions increase of 0.37 million Kg of carbon emissions. This is small and therefore ignored in the calculation above.

APPENDIX

Impact on profitability and earnings per share (EPS) 2011

The latest full year operating profit forecast for year ended 31 December 2011 without any new green initiatives planned will be €700 million.

Forecast operating profit (€ million) 700

Total impact on profit of plastic and sustainable bags (W1) -7

New propane technology for fridges and freezers (W2) +15

Environmental improvements to stores (W3) -4

Improved efficiency of transport (W4) +12

Revised forecast operating profit (€ million) 716

Finance income and expenses forecast for the year ended 31 December 2011 -150

566

The effective tax rate is 25% x 566 = -142

Forecast profit for the period 424

Forecast EPS for the year ended 31 December 2011:

€424 million ÷ 100 million shares in issue = €4.24 EPS

EPS for the year ended 31 December 2010 = €4.54 EPS

A 2011 REDUCTION IN EPS (€0.30 ÷ €4.54) of 6.6% compared with 2010.

This is likely to be opposed based on all new initiatives introduced by RCB (shareholder), RCB is a KEY PLAYER.

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WORKINGS

W1 Saving in operating cost of providing free disposable plastic bags

= €10 million saving annually as per un-seen.

Also possible outcomes from sales of sustainable bags to consider

• €3 less €0.25 each = €2.75 contribution x 4 million bags = €11 million profit.

• €3 less €0.25 each = €2.75 contribution x 8 million bags= €22 million profit.

• €3 less €0.25 each = €2.75 contribution x 5.2 million bags (expected value) = €14.3 million profit.

The average spend from a customer €800 per year x 5.2 million bags (expected value) x 75% (25% customers not reusing bags) x 1% discount = €31.2 million lost profits from loyalty discounts.

Overall financial effect: Based on expected values

Discounts given (expected value) = - €31.2 million.

Saving on disposable plastic bags = +€10 million.

Profits from sales of sustainable bags (expected value) = +€14.3 million.

Total impact on profit -€6.9 million.

W2 New propane technology for fridges and freezers

Impact on profit:

Annual operating cost savings in energy consumption +€35 million

50% reduction in annual servicing and maintenance costs +€20 million

Investment outlay €400 million depreciated over 10 years = -€40 million

Total +€15 million

Other factors financially: lost profits due to each store closing for 5 days in the next 12 months?

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W3 Environmental improvements to stores

Capital expenditure

30 new stores x €1.0 million per store = €30 million

Installation of solar panels at 40 Papy stores = €20 million

Total capital expenditure €50 million

Effect on operating cost and therefore profit:

€50 million capital expenditure ÷ 10 year depreciation charge = -€5 million

Annual operating cost savings from solar panels +€1 million

Forecast annual fall in operating profits -€4 million

W4 Improved efficiency of transport

€150 million on fuel x 10% saving = +€15 million

Saving in operating cost = +€2 million

Depreciation of new software:

(€10 million ÷ 2 years) = -€5 million

Total increase in profit +€12 million

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10 minutes max - Complete Section 3.0 Priorisation

• 5% available • Rank 4-5 business issues, 1, 2, 3 etc, in order of importance. • Give impact discussion for your ranking of business issues, explaining for

each issue its importance, urgency and risk or other considerations for your ranking of each issue.

= TOTAL 60 minutes exam time so far. The following issues were contained within the un-seen information.

• Not providing free disposable plastic bags and offering sustainable bags • New propane technology for fridges and freezers • Environmental improvements to stores • TORN Abattoirs • New IT package for transportation

TORN Abattoirs was considered an ethical issue only. The top two business issues were free disposable plastic bags and the new propane technology for fridges and freezers. The former had huge impact in terms of carbon emissions and customer service. The former because of store closure and €400 million investment required.

Rankings and justifications could include impact on carbon emissions:

1. Not providing free disposable plastic bags and offering sustainable bags 2. New IT package for transportation 3. New propane technology for fridges and freezers 4. Environmental improvements to stores

Rankings and justifications could include impact on profitability

1. New propane technology for fridges and freezers +€15 million improvement to profits

2. New IT package for transportation +€12 million improvement to profits 3. Not providing free disposable plastic bags saves +€10 million annually therefore

improvement to profits 4. Environmental improvements to stores -€4 million annual reduction in profits

Other considerations for ranking could be on the basis of risk or urgency of each business issue. If 4 business issues are prioritised and the rationale for the ranking is good, typically 4%-5% could be awarded. The ‘top 2 issues’ must be placed by the candidate as top three issues to achieve 4%-5%. 2%-3% only awarded, if the top 2 issues are placed by the candidate as their top three issues but rationale for the ranking is weak. Only 1% maximum, if the top 2 issues are not placed by the candidate as their top three issues (as considered by the marking scheme), irrespective of the quality of the rationale provided for the ranking.

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1 hour 30 minutes COMPLETE Section 4.0 Discussion of business issues • For the top 2 business issues (Ranked 1 & 2) allocate 25 minutes to each

issue to complete 4 headings – analysis (3 mins), evaluation (6 mins), alternative advice (6 mins) and recommendations (10 mins).

50 mins (2 issues x 25 minutes each).

• For two remaining business issues (Ranked 3 & 4) allocate 20 minutes to each issue to complete 4 headings – analysis (3 mins), evaluation (3 mins), alternative advice (4 mins) and recommendations (10 mins).

40 mins (2 issues x 20 minutes each).

• Concentrate on only the top 4 business issues prioritised on exam day.

Explanation of what the headings do for each business issue

• Analysis – Make clear your understanding of the issue. Discuss calculations and what they show, provide relevant real-life examples, discuss models and theories to help understand the issue e.g. SWOT within the appendix or other theories you feel are relevant at this time.

• Evaluation – Advantages (if relevant) and disadvantages. For un-seen issues that are opportunities perhaps use ‘SFA criteria’ (Johnson and Scholes) to compare the different options considered.

• Alternative Advice – Advice the board has not yet considered. Give a range of advice to improve the un-seen issues that are weaknesses or threats, or discuss other options for opportunities, or improvements to opportunities themselves. Evaluate briefly your advice provided.

• Recommendations – Advice, its justification (reasons), actions and timescale for implementation of your advice. For each business issue from the un-seen … State I recommend… cross refer to other sections of your report where the issue was discussed. Give reasons for each recommended course of action. Give an appropriate time scale for your actions and advice recommended. RECOMMENDATIONS can be completed within section 4.0, along with your discussion of each business issue, or completed within a separate section of the report (section 6.0).

= TOTAL 2 ½ hours exam time

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Further advice Weaknesses and threats are evaluated, but ONLY the limitations and risks discussed (not normally any advantages). Alternative advice should concentrate on reducing or eliminating the problems identified, evaluate any advice given. Now give recommendations with key reasons. Opportunities are evaluated, BOTH merits and limitations discussed. Give alternative ways of improving the opportunity or other opportunities that could be considered better to improve it, evaluate any advice given. Recommendations will say yes or no to the opportunity, if no, then recommend instead your alternative advice, with key reasons. 15 minutes max - Complete section 5.0 Ethics.

• Highlight 2-3 ethical issues from the un-seen information

• Explain why the issue has ethical implications e.g. immoral, lack of integrity because, or not doing the right thing because.

• Give ethical (moral) advice (with reasons) to resolve the ethical issue and

explain how your ethical advice will help.

= TOTAL 2 hours 45 minutess of exam time

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Guidance for business and ethical issues

Not providing free disposable plastic bags and offering sustainable bags

Technical / Application

• Reference to opportunity within SWOT e.g. to minimise carbon footprint • Reference to Mendelow’s Matrix “RCB : private equity fund (seeks short-term

profits) and 40% shareholder ,they have major concerns regarding the impact on operating profit and earnings per share (EPS) for any new initiatives planned” considered KEY PLAYER also HSOB bank (Papy is a client) 10% shareholder and instrumental in providing the finance required. There is also customers to consider perhaps KEEP INFORMED (but could become more interested if they don’t have carrier bags, so could be KEY PLAYER in supporting the new sustainable bags and doing their bit!

• Possible use of SFA criteria e.g. suitability (does address weakness and is in line with carbon goals), feasibility e.g. negative annual profit ‘negative economic return’, acceptable e.g. not to investors as negative return and to the green public and shopper at large perhaps. Make sure you introduce relevance of SFA (Johnson and Scholes) and cannot score twice for technical if you then use it for another issue so don’t bother!

Application (Calculations)

2010 Carbon emissions (GHGs) (shown as kilograms (kg) per average square metre of sales area) 1,042 x 1,366,700* = 1424 million Kg of carbon emissions.

*1,366,700 this number was taken from the pre-seen information (page 11). This was the ‘average’ square metres of sales area of Papy for 31 December 2010.

The forecast for year ended 31 December 2011 for Papy’s total carbon emissions stated in the un-seen information at 1400 million Kg. This forecast is without taking into account any new initiatives planned within this un-seen information

In 2010, Papy stores purchased from there supplier 750 million plastic bags,

Impact on carbon emissions for 2011:

Forecast reduction in carbon footprint

750 million plastic bags x (0.37kg of carbon emissions per bag)

= 277.5 million Kg of carbon emissions reduction.

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Note: The carbon footprint from fair trade sustainable shopping bags equates to generating only 0.07kg of carbon emissions per bag. The expected value each year for bags sold is (8 million x 30%) + (4 million x 70%) = 5.2 million bags x 0.07kg of carbon emissions per bag = carbon emissions increase of 0.37 million Kg of carbon emissions.

Saving in operating cost of providing free disposable plastic bags: = €10 million.

Possible outcomes from sales of sustainable bags

• €3 less €0.25 each = €2.75 contribution x 4 million bags = €11 million profit.

• €3 less €0.25 each = €2.75 contribution x 8 million bags= €22 million profit.

• €3 less €0.25 each = €2.75 contribution x 5.2 million bags (expected value) = €14.3 million profit.

The average spend from a customer €800 per year x 5.2 million bags (expected value) x 75% (25% customers not reusing bags) x 1% discount = €31.2 million lost profits from loyalty discounts.

Overall financial effect: Based on expected values

Discounts given (expected value) = - €31.2 million.

Saving on disposable plastic bags = +€10 million.

Profits from sales of sustainable bags (expected value) = +€14.3 million.

Total impact on profit -€6.9 million.

Diversity

Plastic bags are either restricted or completely banned in more than 25 percent of the world. Belgium, Italy (total ban since January 1, 2011), Ireland and Hong Kong have legislation discouraging the use and encouraging the recycling of plastic bags by imposing a fixed or minimum levy for the supply of plastic bags or obliging retailers to recycle. In other jurisdictions, including Bangladesh, South Africa, Thailand and three states/territories of Australia, plastic bags are banned.

We’re all guilty of forgetting to take our reusable bags shopping. But at Tesco, we’ve come up with a variety of ways to encourage you to use fewer carrier bags. These savings have been brought about through incentives and rewards for customers who reuse their bags, such as green Clubcard points, which it launched in August 2006. Every year the UK gets through over 12 billion plastic bags – that’s all of them, not just those from Tesco. Reusing them is the best way to reduce this number, as it avoids using up resources and energy to produce more bags. We’ve also cut the size of our carrier bags where larger bags aren’t really needed, like in Tesco Express stores.

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Judgement

Evaluation

Advantages

• 750 million plastic bags x (0.37kg of carbon emissions per bag) = 277.5 million Kg of carbon emissions. Massive reductions.

• Drives financial incentive for 75% of its customers (25% don’t reuse the bag) to become greener and supports differentiation strategy of a sustainable retailor.

Disadvantages

• Customers decisive in supporting this initiative or not, can you really expect to charge a customer 3 euro a bag when a customer needs ‘2 ,3 or even 10’ shopping bags given a heavy shopping load and no alternatives themselves?

• Limited trials undertaken in 4 Papy supermarkets. No feedback has been obtained directly from store managers or customers from these trials undertaken.

• Based on expected values the overall financial effect on profitability is negative and could be far worse if high value sales are achieved e.g. even bigger 1% loyalty discounts at €800 average spend a year (€80 discounts) verses €2.75 positive contribution per customer based on one bag purchased?

Alternative advice offered

Green Clubcard points

Papy does operate a loyalty card scheme. Every time you reuse any bags, Tesco give you green Clubcard points. The more bags you reuse, the more points you’ll collect. Perhaps this could be financially less costly that a 1% loyalty discount each time a customer reuses their bag.

Reusable bags

Tesco have recently extended their range of reusable bags with a greater choice of sizes and materials, including environmentally friendly jute and organic Fairtrade cotton. The range includes a ‘Bag for Life’, which is made from recycled materials and available for just 9p – if it wears out, Tesco will replace it free of charge. Perhaps rather than a loyalty discount of 1% the sustainable carrier bag could be given away free? It only costs €0.25 per bag so even based on 8 million bags a year the total operating cost would be €2 million.

Papy could also run a public campaign and publicise with free gifts or shopping vouchers national winners in each country for how many times they have scanned a bag every year? It can even illustrate to other shoppers how much the customer has saved in carbon

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emissions at 0.37kg of carbon emissions per bag; this again could gain good publicity for Papy and would be cheaper than the 1% discount offered by reusing the bag.

Ethics

This is an ethical issue on the grounds that Papy is doing all they can in terms of minimising the impact of carbon emissions from stores. They are also exercising high integrity given the law in some countries does already prohibit the use of free disposable plastic bags. Papy is going beyond the legislation and being more proactive.

In February the Environment Agency published a report analysing the carbon footprint of various types of carrier bags, which showed that commonly-used plastic ‘bags for life’, if used four or more times, will have a lower carbon footprint than single-use carrier bags.

However cotton bags offered by many supermarkets may be less 'green' than plastic carriers - and may cause more global warming, according to scientists. As a greater amount of energy goes into making a cloth carrier than a polythene one, a cotton bag has to be used 131 times before it has the same environmental impact than its plastic counterpart . And if a plastic bag is re-used as a bin liner, a cotton bag has to be used 173 times - nearly every day of the year - before its ecological impact is as low as a plastic bag on a host of factors including greenhouse gas emissions over its lifetime.

Cotton bags typically made in China have a greater environmental impact because of the water and fertiliser required in their production, as well as their transportation and greater weight. Plastic bags have also come under fire for using up oil and for littering the countryside and fouling the marine environment for wildlife.

Ethical advice

Papy should be doing all they can to convince customer and investors that this is the right decision morally for the organisation to take. However they should also consider whether the alternative offered is the right ‘moral strategy’ for the organisation to take.

• Should Papy be charging customers for alternative bags offered, perhaps offered free initially to customers to give them a ‘bag for life’ this should encourage public and all shoppers to be more concerned.

• They should also be thoroughly checking all alternative bags offered to understand the full environmental effects of each bag not just the cost and profit from each.

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Recommendations (Logic)

Free disposable plastic bags should be discontinued for the reason that it is the socially responsible thing to do. I also think is a good public relations exercise for Papy helping to differentiate stores.

Further advice would be to consider the impact this will have on shoppers. Shoppers need educating perhaps through in store and window displays about proposed changes, the key reasons why e.g. carbon minimisation and when these changes will take place; this should be implemented as soon as possible.

Papy should run a public campaign within national newspapers and offer free ‘bags for life’ as opposed to charging 3 euro per bag. Then publicise national winners in each country for how many times they have scanned a bag every year, with free gifts or shopping vouchers? This could gain good publicity for Papy and would be cheaper than the 1% discount offered by reusing the bag. It only costs €0.25 per bag so even based on 8 million bags a year the total operating cost would be €2 million, far lower than the existing cost of €10 million for free disposable plastic bags. However I would recommend trials undertaken first to establish the likely consumption of reusable bags so that this strategy could be financially assessed more effectively.

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New propane technology for fridges and freezers

Technical / Application

• Reference to opportunity within SWOT e.g. to minimise carbon footprint

• Reference to weakness within SWOT e.g. refrigerated units in need of modernisation

• Reference to Mendelow’s Matrix “customers consider perhaps KEEP INFORMED (but could become more interested if stores are closed and hence a KEY PLAYER.

• Possible use of SFA criteria e.g. suitability (does address weakness and is in line with goals), feasibility e.g. current technology exists and positive economic return, acceptable e.g. yes to investors as positive return and to the green public and shopper at large. Explain relevance of theory first! Make sure you introduce relevance of SFA (Johnson and Scholes) and cannot score twice for technical if you then use it for another issue so don’t bother!

Application (Calculations)

Impact on carbon emissions for 2011:

100 million kWh, in total from all stores x 0.8kg of carbon emissions (per 1 kWh of energy consumption) = 80 million Kg of carbon emissions

Impact on profit:

Annual operating cost savings in energy consumption +€35 million

50% reduction in annual servicing and maintenance costs +€20 million

Investment outlay €400 million depreciated over 10 years = -€40 million

Total +€15 million

Other factors financially could include the need to account for lost profits due to each store closing for 5 days in the next 12 months.

Diversity

Heraldscotland staff (2 Feb 2009) Supermarket fridges and freezers can make up more than a quarter of the companies' total carbon footprint. The HFCs (hydrochlorofluorocarbons) can have as much as 4000 times more impact on global warming than carbon dioxide, say green campaigners. None of the 10 high-street stores fared well in a survey . Britain's biggest supermarket Tesco came second mainly because of their investment in climate-friendly refrigeration they only scored 32 points. Marks & Spencer were at the top with 42 points for their "ambitious plans for replacing HFCs".

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Source: Environmental Investigation Agency 01 Feb 2010. Waitrose tops green league with cutting edge fridge technology. Waitrose highlights business benefit of green refrigeration and calls on more retailers to make the switch cutting edge fridge technology to cut refrigeration emissions over the last year. Refrigeration is a significant milestone for Waitrose in its green strategy - as a fresh food retailer 60% of all the electricity it buys is used to power fridges.

Judgement

Evaluation

Advantages

Weakness addressed e.g. fridges and freezers within Papy stores are environmentally unfriendly and in need of modernisation.

+€15 million savings in annual operating cost

Kinder to the environment e.g. 100 million kWh, in total from all stores x 0.8kg of carbon emissions (per 1 kWh of energy consumption) = 80 million Kg reduction in carbon emissions

Disadvantages

Each store would have to close for 5 days for installation to be completed the disruption this could cause to regular shoppers could be a major inconvenience. The financial consideration of loss of profits for 5 out of 365 days needs consideration also are customers likely to come back if they start shopping with other local competitors?

There is a huge cost also of investment in all stores, Papys net increase in cash and cash equivalents was €123.9 million for 2010 and its Long term loans €870.0 million the initial outlay is €400 million which is a massive investment. What other alternative exist where this money could be spent which could have higher financial returns and still minimise carbon emissions or improve other aspects of CSR.

Alternative advice

The supermarket industry has struggled to find a solution to the environmental impact of refrigeration to date. Hydro fluorocarbon (HFC)-free refrigeration installation technology has traditionally been complex, and lack of technical know-how has been a major barrier to adoption. Waitrose has provided a solution to this problem by developing a simple HFC-free refrigeration installation that can be easily serviced by retrained engineers. Waitrose engineers took two years to develop the technology in partnership with Midlands-based Carter Thermal Ltd. The technology is based on the safe use of propane, a flammable gas that is cost neutral and wholly natural.

Since Waitrose completed the development of the technology in June, it has installed the system in four of its shops - the most recent being in Wellington, Somerset, which opened on 28 January. At least 25 more shops are planned for 2010.

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Perhaps Papy could be developing a similar technology itself in order to lower cost of installation, gain commercial advantage from any new know how or scientific knowledge it discovers and also like Waitrose gain good publicity from it.

Papy could do nothing but given the existing units are in need of modernisation it seems a good idea to do this now and at the same time reduce carbon emissions and annual cost.

One consideration other than closing stores would be to close down sections of the shop and keep essential items still for sale within certain areas of the shop, also contractors could work night shifts in order to minimise impact on customers? All such alternatives would be useful in order to minimise disruption to store customers; however there could be cost issues and health and safety issues to consider with these options.

Ethics

Reducing energy consumption is an ethical issue because all companies must be doing there bit to do everything they can to reduce carbon emissions.

Ethical advice

New technology is one part of Waitrose’s work to reduce its environmental impact, as discussed earlier. Also 100% of the electricity the retailer buys is from green sources. Is Papy doing the same? It’s not just the carbon reduction by reducing energy supply but also the source of where the energy has come from e.g. renewable energy companies that use hydroelectric, solar or wind farms. Other supermarkets are recovering previously wasted cold air from fridges to use in place of air conditioning in other areas of the shop, and warm air to use in place of heating for shops.

Recommendations (logic)

The investment and modernisation of fridges and freezers in Papy stores should be undertaken. The financial effects are a modest improvement in profitability (+€15 million savings in annual operating cost), fridges and freezers within Papy stores are environmentally unfriendly and in need of modernisation.

Whether the reinvestment will be rolled out in 12 months in terms of feasibility is a matter for the Board to consider, the initial outlay of €400 million, could be spread better if over a 24 month period for example. Also leasing arrangements could work better in terms of cash-flow.

If store closures cannot be avoided, one major risk is the change of customer preferences during ‘5 day close down periods’ e.g. start shopping long-term elsewhere.

I recommend limiting this risk

• A survey of shoppers about inconvenience e.g. would you come back? • Store notices well in advance about store closure and reasons e.g. to improve store and

improve CSR image ‘we are going even greener’

• Local and national press advertising and vouchers for new store openings.

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Environmental improvements to stores

Technical/Application

• Reference to opportunity within SWOT e.g. to minimise carbon footprint

• Use of Lewin’s UNFREEZE, BEVAVIOUR CHANGE, REFREEZE strategy for redundancy. Need to explain relevance of model first though.

Application (Calculations)

2011 Forecast impact on operating cost and therefore profit:

Capital expenditure

30 new stores x €1.0 million per store = €30 million

Installation of solar panels at 40 Papy stores = €20 million

Total capital expenditure €50 million

Effect on operating cost and therefore profit:

€50 million capital expenditure ÷ 10 year depreciation charge = -€5 million

Annual operating cost savings from solar panels +€1 million

Forecast annual fall in operating profits -€4 million

Note: The payback period on solar panels would be €20 million. ÷ €1 million = 20 years.

These environmentally friendly proposals could improve the business stance for Papy and lead to higher sales from the publicity it could receive. The installation of solar panels at 40 stores is forecast to save €1.0 million a year in operating cost.

If Papy is considered by its customers and the media as an environmentally responsible company it could generate additional business and boost the company’s image by undertaking these new initiatives. In real life, Marks and Spencer has generated much favourable media coverage for its “Plan A, as there is no Plan B” environmental initiatives and recycling targets. Consumer awareness of “green” issues is high and this is differentiator or USP for consumers.

Why Ethical

The ethical dilemma is the payment of dividends in the past has been taking priority over environmentally friendly initiatives e.g. the investment in solar panels.

Ethical Advice Offered

It would be morally the right thing to do and clearly would support Papy’s CSR aims in terms of increasing their energy efficiency and minimising carbon footprint. Those companies which act in a more socially responsible manner, can also bolster up there share price due to shares being more marketable and highly demanded by ‘green investors’.

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Recommendations (Logic)

It is recommended that Papy does proceed with the investment of €20 million on solar panels. Even though the payback is 20 years and very long, it does reduce carbon emissions, so should be undertaken and incorporated with Papy’s CSR initiatives.

It is recommended that the other environmentally friendly initiatives be incorporated in all new store builds in future e.g. 30 new store openings planned 2011. Good CSR initiatives can generate long-term customer loyalty which can be a huge source of competitive advantage. Starbucks offers ‘certified organic coffee’ as well as fair trade, customers often paying premium prices because of this. The Body shop built its whole organisations persona based on ethics and social responsibility.

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TORN Abattoirs

Considered an ethical not business issue.

2 ethical issues here, one is animal cruelty; it is simply something Papy should not allow to happen. Also number two as an issue, Operations and Logistics Director - Rafael Lucci should not be cancelling a contract without clear and thorough investigation first.

Ethical advice: TORN Abattoir, no clear action such as cancelling this contract without a clear investigation first is moral advice. TORN Abattoir, for example could have been acting ethically given it may also use other sub-contractors and suppliers.

Another moral question if TORN Abattoir, is to blame, is the integrity when it comes to supplier selection, for example was the decision to cease using SNS Abattoir down to a cheaper contract? Is economics (saving money) overriding ethics here? Ethical recommendations would include mandatory criteria to ensure all future suppliers have a proven track record of being socially responsible and ethical in future. Other advice is that Papy should accept at least the responsibility to do something about this right now and clean up this media mess e.g. better policies implemented immediately and even use of technologies such as CCTV.

Diversity

Martin Hickman, Consumer Affairs Correspondent, The independent, 19 November 2010. A slaughterman slits the throat of sheep, then cuts off their heads while they are still alive. Secret footage shot inside a West Country slaughterhouse has reignited a row over abattoir cruelty, following a series of undercover films that have shed new light on the way animals are killed behind closed doors.

Yesterday Morrisons became the first supermarket to promise to install CCTV at its abattoirs to reassure the public. The RSPCA called for other chains to follow suit. The supermarket said CCTV images from its Colne and Turriff abattoirs would be stored for 30 days and made available to the Food Standards Agency (FSA). Spokesman Martyn Fletcher said: "Our customers want to know that animals are treated well through the slaughtering process and we believe installing CCTV cameras is the best way to demonstrate we have the highest possible standards."

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New IT package for transportation

Technical /Application

• Reference to opportunity within SWOT e.g. to minimise operating cost and carbon footprint.

• Reference to IT strategists like Earl’s nine reasons for investing in IT e.g. IT can be used as part of a commercial strategy to gain competitive advantage e.g. Tesco introduced customer self-scan systems as a way of reducing queuing time for customers therefore improving customer service, Papy the same in terms of gaining operational efficiency.

Application (calculations)

2011 Forecast impact on operating cost and therefore profit:

€150 million on fuel x 10% saving = +€15 million

Saving in operating cost = +€2 million

Depreciation of new software:

(€10 million ÷ 2 years) = -€5 million

Total increase in profit +€12 million

Carbon emissions impact:

90 million gallons of fuel x 10% saving in fuel x 12.2kg = 110 million Kg of carbon emissions.

Judgement

Evaluation

Payback would be immediate and effect on profits and carbon emissions all very good.

Alternative advice

There are a few fundamental ways that companies in any industry can do to reduce their transportation costs.

Milk-runs mean to consolidate multiple orders in one truck and stop to deliver for multiple customers. It’s the best solution to resolve the challenge. It also provides customer satisfaction at the same time because it gives customers flexibility to order small batches. The challenge of executing milk-run is to plan the delivery route. Unless it’s a repetitive route at the same schedule, it can involve a lot of manual planning and coordination between logistics personnel, carriers and the customers in order to optimize the truck space. But the savings from consolidation can be significant.

Fleet utilization. Improving fleet utilization is another way to save transportation costs. Fleet, is more cost efficient to serve within a distance of average 150 miles. For distances greater than 150 miles,

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line haul will have a lower cost per mile. So, by utilizing fleets for transportation movements within that distance will lower the fleet fix cost significantly.

Stock transfer reduction. The cheapest way for transportation is not to move it. When companies have a lot of internal stock transfer movements within their supply chain network, it’s time to review their planning.

Transportation can be avoided by an effort of selling the inventory locally, instead of moving them to a different location for storage.

Backhaul for reverse logistics, the transportation costs saving opportunity can be identified through evaluating reverse logistics networks. Companies should collaborate and partner with their carriers, suppliers or customers for any backhaul opportunities. The carrier’s cost can be reduced because of equipment utilization from this close looped network. This cost savings benefits should be shared among supply chain partners.

A range of staff initiatives including smarter driving days for delivery drivers could also become integral within human resource policy of Papy, to teach a range of practical techniques which could help lower current fuel consumption further and reduce the likelihood of accidents or fatalities on the road.

Ethical advice:

Reduce the environmental impact of transport logistics

• Choose transport methods for vehicles selected with the least environmental impact not just on cost grounds.

• Using work vehicles efficiently • Choose low-emission vehicles • Use alternatively powered vehicles • Tax breaks for low-emission vehicles

Everyone should do their bit.

Recommendations (logic)

The investment in new IT software should be undertaken as soon as possible. It pays itself back immediately and has a positive effect on profitability and carbon emissions. There is also alternative advice given in order to improve fuel and vehicle efficiency even further, including also ethical advice for everyone to do their bit.

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15 minutes– Complete Question 1 requirement (b) within an appendix

• Compete the communication requirement ‘Part (b)’ from the exam requirement. Use the key words within this requirement, to drive headings used and give more focus to the e-mail, letter, slides etc that you have been asked to prepare. Look out also for key works such as ‘no more than 10 short sentences or 10 bullet points’, there is a difference!

= 3 Hours exam time now completed.

Appendix Papy “Fair Trade” 100% sustainable carrier bag as the alternative to free disposable plastic bags Slide One

Free disposable plastic bags

• Improves profit by +€10 million annually • 750 million plastic bags equates to 277.5 million Kg of carbon emissions. • Customers decisive in supporting this initiative

Slide Two

The Papy “Fair Trade” 100% sustainable carrier bag

• Limited trials undertaken in 4 Papy supermarkets • Overall financial effect (based on expected values) gave discounts of (- €31.2

million) compared with profit from sales of (+€14.3 million). • An unprofitable opportunity based on trials undertaken

Slide Three

Recommendations

• Free disposable plastic bags should be discontinued • Reasons: Socially responsible thing to do and good public relations • Offer free ‘bags for life’ to customers rather than charging 3 euro per bag • Reasons: Improves customer service and could cost less than +€10 million annually